The Options Industry Council (OIC) - Options Exercise

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When can I exercise my stock options? The process of earning the right to exercise is called vesting.

Can an Option be Exercised on the Expiration Date?

You can usually only exercise vested stock options. Some companies will allow you to early exercise before your options vest.

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If your company allows this, you can exercise your options as soon as you get your option grant, but they will continue to vest according to the original schedule. How long do I have to exercise my stock options?

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Historically, many companies made this period three months. However, some companies offer more generous PTE periods now, like seven years or for as long as you worked at the company.

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Early exercise is the right to exercise your stock options before they vest. Your option grant should say whether you can early exercise.

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Early exercising could benefit you in a few ways: If you have ISOs, early exercising could help you qualify for their favorable tax treatment. In order to qualify, you need to keep your shares for at least two years after the option grant date and one year after exercising.

Similarly, if you have NSOs, early exercising helps start your holding period sooner so you may pay the lower long-term capital gains tax when you sell.

Note: you must file an 83 b election within 30 days of exercising to take advantage of this potentially favorable tax treatment. If you miss this deadline, there could be serious ramifications.

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  3. The Options Industry Council (OIC) - Options Exercise

By waiting the usual one-year vesting cliff, you may get a better idea of whether you should purchase your options or not. Also, if you leave your company after early exercising but before the stock vests, your option grant usually gives the company the right to repurchase your early-exercised but unvested stock.

How do I exercise my stock options?

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Depending on your company, there may be a variety of ways you can exercise your options: Pay cash exercise and hold : You use your own money to buy your shares and keep all of them.

Plus, your money is tied up in your shares until you sell. However, it could pay off if your shares end up being worth a lot. Cashless exercise and sell to cover : If your company is public or offering a tender offer, they may allow you to simultaneously exercise your options and sell enough of your shares to cover the purchase price and applicable fees and taxes.

Should an Investor Hold or Exercise an Option?

You can do whatever you want with the remaining shares—keep the rest or sell some. Cashless exercise and sell : If your company is public or offering a tender offer, they may allow you to exercise and sell all your options in one transaction.

Some of the money from the sell covers the purchase price plus applicable fees and taxes, and you pocket the rest of the money. If your company is using Carta to issue securities, learn how to exercise your options here.

What should I think about when deciding whether to exercise my stock options? You should consult a tax advisor before exercising, and you should also ask yourself: Can you? Remember: unless your company allows early exercising, you can only exercise vested options.

What does exercising stock options mean?

Are your options in-the-money or underwater? How is the company doing? Can you sell your shares after exercising? Can you afford the taxes? Depending on your situation what type of options you have, how many you were granted, how much income only options are exercised make, etc.

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After you exercise your options, it can be hard to know when to sell. A lot of your decision will come down to your specific situation—again, you should talk to a tax advisor before exercising or selling. But it usually boils down to do you… Exercise and sell right away for a guaranteed only options are exercised but probably higher taxes?

Hold on to them for at least a year for a potentially bigger profit or loss and lower taxes? Exercise and sell within a year which is usually the most expensive option, tax-wise?

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If you want to maximize your profit, talk to a tax advisor before exercising and selling. This communication is for informational purposes only, and contains general information only. Carta is not, by means of this communication, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services.

Options Exercise

This publication how to make money on tos not a substitute for such professional advice or services nor should it be used as a basis for any decision or action that may affect your business or interests.

Before making any decision or taking any action that may affect your business or interests, you should consult a qualified professional advisor. This communication is not intended as a recommendation, offer or solicitation for the purchase or sale of any security.

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Carta does not assume any liability for reliance on the information provided herein. Jenna Lee Jenna is on the content team at Carta. Despite working in Fintech her entire career, she has never had a Only options are exercised Croix.

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